For years, filming in China was one headache after another for Hong Kong studio Media Asia Group. First there were quotas mandating a minimum number of mainland actors. Then there were rules stipulating that at least half a film's scenes be shot in China rather than Hong Kong. And once a movie was ready for release, the studio had to fight for a spot on the roster of just 20 foreign films released annually in China. Now, thanks to a new free-trade agreement between China and Hong Kong, those hassles have been either eliminated or dramatically reduced -- creating a huge new market for Hong Kong's prolific film studios. "Our future is in China," says John Chong, Media Asia's executive director.
But others in Hong Kong are asking, with growing anxiety, how free a future that will be. In April, Beijing pulled the plug on a debate about political reform in the city, ruling out the possibility that Hong Kongers could directly elect their next leader when Chief Executive Tung Chee Hwa's term expires in 2007. Stephen Lam, secretary of constitutional affairs in the local government, defends the ruling as "entirely lawful and constitutional," insisting that it "has not undermined our high degree of autonomy." Yet three outspoken pro-democracy radio talk-show hosts have since quit their jobs, citing pressure from pro-Beijing groups, while polls show growing dissatisfaction with China's rulers. And on June 4, more than 80,000 people gathered in a Hong Kong park to mark the 15th anniversary of the Tiananmen Square crackdown -- and to drive home the point that the democracy movement must survive in Hong Kong. "The Chinese government pays no attention to the will of the Hong Kong people," complains Amy Hui, a 24-year-old researcher at a real estate agency.
Which force is more powerful -- the economic optimism or the political pessimism? The answer could come on July 1. On that day last year, as Hong Kong was emerging from the SARS epidemic and the economy was struggling with record-high unemployment, half a million people took to the streets to protest against Tung and his plan to ram draconian anti-sedition laws through the legislature. The huge turnout forced Tung to retreat. This year, pro-democracy advocates are promising another big demonstration. "We don't want to start a revolution," says lawmaker Emily Lau, a leading Beijing critic from the Frontier Party. "We want our democracy." President Hu Jintao and Premier Wen Jiabao, meanwhile, are eager to avoid a repeat of last year's march, fearing it could help Beijing's critics win enough votes to gain control over Hong Kong's legislature on Sept. 12, when voters will directly elect half of the body's 60 members.
To keep the peace, Hu's government is showering the territory with economic goodies. Beijing has relaxed restrictions on individual travel to the city, allowing millions of Chinese tourists to visit for the first time. This year, CLSA Asia Pacific Markets expects 12 million mainlanders to pump nearly $7 billion into Hong Kong's jewelry shops, clothing outlets, and dim sum restaurants. That is helping fuel an economic resurgence. Growth is likely to hit 6.6% this year, according to government estimates, double last year's rate. Unemployment, which hit a record high of 8.7% after the SARS outbreak, has fallen to 7.1%. The property market, which slumped after the former British colony's return to Chinese rule in 1997, is finally bouncing back. And a five-year bout of deflation looks likely to end.
To keep Hong Kong growing, Beijing is offering tighter links to the mainland economy. Key to this effort is the Closer Economic Partnership Arrangement (CEPA), which took effect on Jan. 1. The deal eases restrictions on operating in the mainland not only for film studios such as Media Asia but also for a host of other businesses including banks, accounting firms, and retailers. Boosters rave that the pact provides a renewed sense of direction. Since the 1997 handover and the rise of Shanghai and Shenzhen as important business centers, they say, Hong Kong has lost its traditional role as a gateway to China. "We've been searching for the next step," says Victor K. Fung, chairman of local trading power Li & Fung Ltd. "CEPA gives Hong Kong the opportunity to break out and access the China market."
These boosters see further integration with China as Hong Kong's best hope. To that end, the territory's business leaders are looking to strengthen ties with the mainland provinces in the dynamic Pearl River Delta region nearby. So in early June, government leaders began discussions on a regional partnership called "9 Plus 2," which foresees the economic integration of the nine provinces in Southern China, plus the former Portuguese colony of Macao, and Hong Kong. At a time when regional trading blocs are emerging in China, the goal is to create one that would help Hong Kong and environs compete with Shanghai and Beijing. "In 10 years' time, the Pearl River Delta should be doing what Taiwan and South Korea are doing today," says industrialist Victor Lo, CEO of battery maker Gold Peak Industries (Holdings) Ltd.
Few, though, believe closer economic links will cut pressure for democratic reforms in Hong Kong, as Beijing hopes. Gordon Y. S. Wu, chairman of developer Hopewell Holdings Ltd., has long been one of the leading advocates of more integration with neighboring Guangdong province -- including a proposed 29-kilometer bridge across the Pearl River Delta from Hong Kong to Macao and the Chinese city of Zhuhai. While Wu is critical of local democrats and a political culture in which "every day we are arguing like hell," he says Beijing will need to ease its hard-line stance against democratization. "There are 6.8 million people here, and nobody wants to be a spectator," says Wu, who sits on an 800-member committee that elected Tung to a second term in 2003. Even though Hu's government has ruled out universal suffrage in 2007, Wu says Beijing could still give Hong Kong people more say in choosing their leaders.
That's unlikely to satisfy the organizers of this year's July 1 march, especially after the overwhelming turnout in 2003. "Last year was an electrifying event," says Christine Loh, CEO of Civic Exchange, a local think tank. "It changed how [Hong Kongers] think about themselves and about society." Opposition Democratic Party members have been offering olive branches to Beijing, hoping to show voters that they don't want to provoke a confrontation with China. But Yeung Sum, the party's chairman, doubts that Beijing's strategy will succeed in winning over Hong Kongers. "Helping improve the economy is simply not enough," he says. "People want political reform." After years of malaise, Hong Kong is eagerly accepting Beijing's economic largess. But in a newly politicized city, that still won't keep people determined to guard their rights from taking to the streets.
By Bruce Einhorn and Frederik Balfour, with Christopher Power and Miguella Lam, in Hong Kong